This content is sponsored by PenFed Credit Union, federally insured by NCUA.
Getting a new car can be exciting, but don’t forget about one important step before you apply for an auto loan: getting pre-qualified.
Getting pre-qualified for an auto loan means a lender has reviewed basic financial information to estimate the amount of money you may qualify to borrow and at what interest rate, according to PenFed Credit Union. There is no real commitment from either side with a pre-qualification. Getting prequalified gives you an indication of whether you can get the green light for the loan.
“You can use a pre-qualification to understand how likely you are to be approved for a loan and get an idea of how much you can comfortably spend to buy a new or used car,” said the experts at PenFed Credit Union.
When you get a pre-qualification, the lender may check your credit score through a soft inquiry – meaning it doesn’t affect your credit score even though you can see them on your personal credit report. These soft inquiries don’t indicate great risk because they aren’t tied to a new application for credit.
However, to buy a car, you will have to submit a credit application – which will be a “hard inquiry,” meaning it will pull your credit and impact your credit score.
Pre-qualifying for an auto loan can help you estimate what you can afford and gives you some assurance so you can allow yourself to focus on the car you like and works best for you.
“With far fewer numbers swirling around your head, you can concentrate on how the car feels when you’re behind the wheel, which should enhance your overall buying experience,” Pen Fed’s experts said.
If you’re ready to start the pre-qualification process, first you’ll need to decide the best type of auto lender for you. Then, you’ll want to make sure to comparison shop across different lenders to find the best rate you can.
“Before getting pre-qualified, spend some time online researching auto loan offerings from several credit unions, banks, and online lenders,” PenFed said. “Look for lenders that offer the best rates, charge the fewest fees, and make the application process quick and easy (meaning, online).”
From there, use an auto loan calculator (like this one with PenFed) to estimate your monthly payments with different rates and terms.
Also important in the pre-qualification process is knowing how much you can spend. The experts at PenFed Credit Union recommend setting a budget to help in your car-buying and pre-qualification journey.
As you negotiate the price of your new car, concentrate on getting the best deal before discussing payment options, PenFed’s experts said. Once you settle on a final price, you can then explore ways to get your monthly rates where you need them to be.
“Many dealers will try to get you to focus on monthly payments, which can skew your vision of the overall price and lead to unnecessary costs,” PenFed said.
Applying for pre-qualification through a credit union has its benefits, which include lower rates, reduced (or no) fees, flexible terms and better service.
“Whether you’ve just begun your car search or you’re ready to start wheelin’ and dealin’, an auto loan pre-qualification should be incorporated into your strategy,” the experts from PenFed said. “Investing a small amount of time at these early stages of your car-buying journey can yield substantial savings of energy, effort, heartache — and, perhaps most importantly, money — throughout the process and over the life of your loan.”
Find out more about PenFed Credit Union’s auto loan options on their website.